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Time Warner's Unresolved Conflicts

Time Warner Cable's results really were decent, but the rest was at best a mixed bag.

When Time Warner (NYSE:TWX) released its first-quarter results, I told Fools about its "conflicted quarter." That title is equally appropriate for the second quarter at the world's biggest media company.

At first blush, Time's results actually look relatively solid, with net income reaching $1.07 billion, or $0.28 a share. Those figures represent an improvement from the $1.01 billion, or $0.24 per share, that the company generated in the second quarter of 2006.

But there was real softness -- or perceived softness -- at some of the company's individual units. The biggest area of concern was AOL, which many observers of the company (including yours truly) feel should be spun off or sold. The segment's total revenues fell by 38% to $1.25 billion, as the contribution from subscriptions peeled back in favor of the company's advertising-based model. The 16% growth in ad revenues was less than the more than 40% hikes in recent periods. It was also below the 20% rate that some Wall Streeters had apparently been expecting.

And then there's Time Warner Cable (NYSE:TWC), the publicly traded cable arm, with 16% of its shares becoming publicly traded earlier this year. Revenues soared by 59% in the quarter. But with costs climbing even faster, net income dipped to $272 million, or $0.28 per share, from $293 and $0.29 per share the year before.

But as always, the real key to a cable company's strength lies in its revenue generating unit (RGU) growth. An RGU is one customer taking one service at the company. That growth reached about 546,000 net units in the quarter, which was slower than had apparently been anticipated, as was the case at industry leader Comcast (NASDAQ:CMCSA) last week.

However, the second quarter of the year typically contains several factors -- such as college students leaving campus for the summer and disconnecting their cable service -- that generally aren't found in the other periods. So judging a cable company by the June quarter alone is a dicey exercise at best.

The rest of Time Warner's operations were something of a mixed bag. Filmed entertainment revenues fell 4.7% to $2.25 billion, but last year's results made for difficult comparisons in that they contained proceeds from films or programming with names you've heard, like Potter or "Friends." The networks segment, which includes its cable properties like HBO and TBS, turned in lower revenues, as ad sales wobbled by 11% to the downside, while the top line at publishing was essentially flat.

Last quarter, I urged Fools to consider buying shares in the cable company, rather than subjecting yourselves to the unevenness of the rest of Time Warner's operations. With the results of the second quarter now in, I think that advice still applies.